ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The government makes one requirement of them in exchange for this ability: keep a certain amount of deposits on hand to cover possible withdrawals. This amount is called the reserve requirement, and it is the rate that banks must keep in reserve and are not allowed to lend.

Detailed explanation-2: -The reserve requirement exemption amount will be set at $36.1 million, up from $32.4 million in 2022, and the low reserve tranche will be set at $691.7 million, up from $640.6 million in 2022. The adjustments to both of these amounts are derived using formulas specified in the Federal Reserve Act.

Detailed explanation-3: -The Fed uses contractionary monetary policy to dry up liquidity. This has the same effect as taking money out of circulation. The Fed raises the fed funds rate to reduce the amount of capital in the money supply. Banks have less money to lend when this happens.

Detailed explanation-4: -The Fed makes changes to the money supply by lowering or raising the discount rate banks pay on short-term loans. The Fed also buys or sells securities from banks to increase or decrease the amount of money these banks have in reserves.

Detailed explanation-5: -The Fed uses three primary tools in managing the money supply and pursuing stable economic growth. The tools are (1) reserve requirements, (2) the discount rate, and (3) open market operations. Each of these impacts the money supply in different ways and can be used to contract or expand the economy.